Taiwan's plastics industry looks at 'reshoring' from China

TAIPEI, TAIWAN (Oct. 2, 8:30 a.m. ET) — The United States isn’t the only place debating “reshoring” of manufacturing from China these days — Taiwan’s large plastics industry is also taking a hard look at whether rising costs in mainland China will bring some manufacturing back.

As with the debate in the United States, anecdotes can sometimes seem in greater supply than hard facts. But executives at the recent Taipei Plas show said there are strong signs that manufacturers there are rethinking the China cost equation.

Over the last two decades, Taiwanese companies have sent a lot of their manufacturing to China to take advantage of lower labor costs. But with factory wages rising 15 percent a year on the mainland, some are taking a new look at the business case for “reshoring.”

Two years ago, when Taiwan’s government started urging businesses to consider it, some executives didn’t take the suggestions seriously, said David Chang, vice general manager of Taiwanese press maker Multiplas Enginery Co. Ltd.

“At the time people considered it a joke,” Chang said. “Now people don’t think it’s a joke because of the wage increases [in China].”

The head of the Taiwan Plastics Industry Association, which represents about 700 processing and mold making companies on the island, predicted some work could come back, although he cautioned discussions are in their early stages.

Hsieh Sheng-Hai, secretary general of the Taipei-based group, said processors are closely studying it and want to see how key customers, including Taiwan’s large contract electronics manufacturers like Foxconn, handle the increased challenges of operating on the mainland.

He noted that even if work leaves the mainland, it may not come back to Taiwan – it could go to Indonesia, Vietnam or elsewhere in Southeast Asia. But it’s also true that Taiwanese companies see more problems operating in the mainland and are looking for solutions, industry officials said.

“They feel moving back to Taiwan would be much easier to do their business,” Hsieh said.

Some global plastics machinery companies at Taipei Plas, held Sept. 21-25, said they had seen significantly more sales of equipment to companies in Taiwan, and said “reshoring” from China was a big driver.

“We think Taiwan is increasingly important because customers are moving their production from China back to Taiwan,” said Roland Pechtl, sales manager for Eastern Asia and Australia for Austrian machinery maker Wittmann-Battenfeld GmbH. “They are moving back and normally upgrade their equipment. That is a good opportunity for us.”

The Kottingbrunn, Austria-based firm is building a new technology center in Taichung, Taiwan. It plans to open the two-story building, occupying 2,275 square meters of land, in May.

In the late 1980s and 1990s, Taiwan had been a strong local market for Battenfeld’s injection machines, but dropped off to very little activity before picking up starting in 2008 and returning to levels seen in the early 1990s, Pechtl said.

“The success in the last four years made us do this investment,” he said.

At the company’s Taipei Plas booth, it was showing micromolding presses and automated quality control systems, the kind of technology investments local firms are more interested in, he said.

Other European machinery firms expanded their presence at the Taipei show, saying they also are seeing local demand grow. Arburg GmbH + Co. KG had its first corporate booth there rather than being represented by its local agent, and it brought more equipment.

“We decided to have our own corporate booth… due to the fact that our business has significantly grown in Taiwan, especially over the last 12 months,” said Helmut Heinson, managing director of sales for the Lossburg, Germany-based firm.

He said Taiwan’s domestic demand is about 2,500 injection presses a year, which makes it a significant machinery market, about the size of Brazil or India, even though Taiwan’s population of 23 million is only a small fraction of those countries.

Engel Austria GmbH, as well, had its first booth at Taipei in 10 years and was seeing local demand grow, said Thomas Aubock, Shanghai-based sales director.

Taiwanese press reports are also suggesting that manufacturers are looking at coming back.

A late September article in the English-language China Post newspaper, headlined “Trend suggests Taiwan could be ready to embrace firms returning from China,” quoted the president of Taiwanese machinery maker Victor Taichung as saying in the last year it’s seen a significant shift of equipment sales from China to Taiwan.

At Victor Taichung’s booth at Taipei Plas, Martin Li, the manager of the overseas marketing division, could not confirm Huang’s comments. Victor Taichung’s business includes more than plastics-related equipment, and it wasn’t clear to what extent Huang was referring to plastics machinery. But Li said some work is coming back.

The China Post article said investment by Taiwanese returnees from mainland China is forecast to top 50 billion Taiwanese dollars this year (US$1.7 billion), with a total of 27,000 jobs created by returnees since 2006.

Small Taiwanese mold maker and injection molder Ivy Precision Co. Ltd., which has its sole factory in Changhua County, said manufacturers are interested in bringing production back to Taiwan but one challenge is finding enough workers.

In an interview at Ivy’s booth at the show, Sales Manager Yao Cheng-Huai said some Taiwanese firms, including his, bring in workers from Vietnam or Thailand for their Taiwan factories.

Companies and some government agencies would like to raise the government-imposed caps on the number of employees that can come from other parts of Asia, Yao said, but it’s a contentious topic with unions.

“Labor groups think foreign workers will take their jobs but we can’t find enough workers,” he said.

Liao Chien Lang, general manager of Kaohsiung-based hot runner maker Eden Mold Co. Ltd., said Taiwan’s costs are already high and places like Indonesia and Thailand could benefit more.

Still, the stakes in any shift could be sizable because Taiwanese-owned plastics processing companies have large factories in China and Asia.

A significant amount of the 15,000 injection presses made each year by Taiwanese machinery firms are sold to other Taiwanese processors all over Asia, and that alone is likely to generate considerable interest in where Taiwan’s industry puts its factories.